India is the second largest sugar producer in the world. The sugar industry in India has witnessed surplus production of around 6 million tonnes over the years making India one of the key sugar exporters in the world.
Looking back over the past decade, the sugar industry has been through a remarkable turnaround in fortunes. This has been possible largely through favorable policies adopted by the government, chief among them is the Ethanol Blending Program (EBP).
The sugar industry has already achieved 10% ethanol blending under the EBP in 2022. The government has set a target of 20% blending for 2023 to 2025 which is achievable given the kind of capacity expansion the industry is undertaking. This will result in incremental forex savings of around USD 45 billion annually.
As per industry estimates, around 9 billion liters of ethanol is required to achieve 20% blending. This will require diverting around 9 million liters of sugar production to ethanol.
The sugar industry currently enjoys various incentives in terms of interest subvention for ethanol capacity expansion projects, and export subsidies, among others. The government has also permitted the direct conversion of sugarcane juice to ethanol.
The shift towards the ethanol business adds to the profitability of sugar cos as it offers better margins than the sugar production business. To further diversify the revenue streams, the sugar manufacturers intend to set up fuel retailing stations to sell ethanol-blended petrol and bio-CNG.
As per Indian Sugar Mills Association data, there are 509 sugar mills in India that are located deep in rural areas. These mills can be converted into ‘energy hubs’ by establishing fuel retailing units within or nearby their premises. This would enable blending at the sugar factories rather than at depots operated by Oil Marketing Companies (OMCs) leading to cost savings in transporting ethanol from factories to depots.
Enabling the sugar mills to set up fuel retailing stations will provide further incentive to invest in bio-fuel plants and food-grain distilleries. It will also allow sugarcane farmers to earn more income. However, a substantial ramp-up in sugar cane cultivation will be required across major sugar-producing states.
The transition from food to fuel business may come with a lot of riders. The fuel retailing business engenders completely different competencies and risk mitigation capacities given the highly inflammable nature of products.
The transition may put the sugar cos in direct competition with the OMCs. The government-owned OMCs such as IOCL, BPCL, and HPCL are already working on the Sustainable Alternative Towards Affordable Transportation initiative of the government which plans to establish 5,000 Compressed Biogas or CBG plants across the country.
Further, the fuel retailing business is highly regulated. The sugar factories will also need to get various licenses and permits from Petroleum Explosives and Safety Organization for fuel retailing business.
Given the challenges in the fuel retailing business, the Indian Sugar Mills Association is working out on detailed feasibility report as part of the proposal to be submitted to the government of India. A national-level strategic framework may be required to bring a coherent energy ecosystem.
